‘New Normal’ is a Name for a Fear and, Unfortunately, Roosevelt Was Right

This paper documents how analyst recommendations are related to periods of bubbles. We find a strong positive relation between the concentration in analyst buy recommendations and bubble continuation in two settings. First, we show a positive association between the concentration in buy recommendations and the tech bubble; the crash was associated with changes in buy recommendation concentration. Second, in an out-of-sample analysis of firms in multiple industries from 1994-2009, we show that analyst buy recommendation concentration predicts future return patterns that exhibit characteristics of a rational speculative bubble. While the evidence is not sufficient to conclude that analyst buy recommendations are the causal factor that perpetuates the mispricing, our findings suggest that, at a minimum, analysts do not act proactively to correct this form of mispricing in a timely manner.

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Analyst Recommendations and Stock Price Bubbles

Balakrishnan

Schrand

Vashishtha

2020

Journal of Financial Reporting

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‘New Normal’ is a Name for a Fear and, Unfortunately, Roosevelt Was Right

Abstract: Beacon of empiricism, nemesis of the efficient markets hypothesis, and Nobel Prize winner Robert Shiller speaks to Gunduz Caginalp about the new edition of Irrational Exuberance and the truth behind the ‘new normal’

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Analyst Recommendations and Stock Price Bubbles

Analyst Recommendations and Stock Price Bubbles

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